The Federal Reserve decided to keep interest rates steady, which was expected. Chairman Powell stated that this policy is appropriate. He acknowledged an increase in goods inflation and predicted that inflation may rise further in the coming months. In May, US housing starts were at 1.256 million, below the expected 1.357 million. Initial jobless claims were in line with predictions at 245,000. President Trump mentioned possible meetings with Iran and criticized Powell while expressing support for Israel amid ongoing conflict.

Market Performance Summary

In the markets, gold dropped by $22 to $3366, while US 10-year Treasury yields fell by 1 basis point to 4.39%. WTI crude oil remained steady at $74.87. The Australian dollar performed the best, while the Swiss franc lagged behind. The S&P 500 had a slight dip, down by just 1 point. The US dollar gained strength after Powell’s comments on inflation, with the USD/JPY increasing from 144.60 to 145.15. The euro and pound also fell by about 40 pips. While bond and stock movements were limited, attention has shifted back to ongoing trade issues and tensions in the Middle East, especially regarding President Trump’s stance on Iran. The Federal Reserve’s choice to keep interest rates unchanged, a decision anticipated by the market, indicates a preference for caution as inflation remains a concern. Powell mentioned rising goods inflation and prepared markets for the possibility of more to come—this could influence expectations regarding rates and pricing in short-term interest rate futures. His acknowledgment that inflation might be persistent shows their concern, even though they are not making immediate policy changes right now.

Economic Concerns And Political Implications

The Fed’s steady policy, combined with a warning about rising price pressures, sends a clear message: inflation is still a significant concern. Traders need to prepare for this reality, not interpret it as a signal to relax policies. Powell’s speech lacked optimism, and he did not mention any interest rate cuts. Meanwhile, the unexpected decline in US housing starts highlights worries that parts of the economy are struggling. Weak construction data signals not only sensitivity to interest rates but also a potential cooling in consumer sentiment. Jobless claims are holding steady but not improving, indicating that the Fed may need to maintain its stance for now. On the political front, comments from Washington add uncertainty. Criticism aimed at the Fed suggests inconsistencies that could create concerns among global partners, especially with rising tensions in the Middle East. This could lead to temporary risk-off behavior in the markets, which could trigger increased volatility in rates. In commodities, the $22 drop in gold aligns with rising real yields, as worries about inflation outweigh immediate demand for gold. The Treasury market’s small pullback shows that reactions are more focused on future expectations rather than current data. Crude oil’s price stability at $74.87 indicates unresolved supply issues, while demand reactions are cautious until clearer information about Iran emerges. Currency markets reacted more clearly. The dollar strengthened, driven by Powell’s comments and overall changes in rate differentials. The yen, typically a yield play, responded predictably to inflation remarks. Movements in the euro and pound were smaller but indicate that traders are reassessing the future path of rates rather than reacting to new headlines. Their declines suggest that the market is accepting a tighter US policy for a longer time. Overall, the lack of change in equity indices, with the S&P 500 down just 1 point, doesn’t signal calmness. Instead, it shows a pause as traders adjust to these new indicators. A strong dollar, along with weak housing data and rising inflation risks, creates opportunities in rates and foreign exchange rather than in equities. The Australian dollar’s strength, in contrast to the Swiss franc’s weakness, comes more from seeking higher yields than from local factors. As trade tensions and political complexities shape upcoming market risks, the key question is which asset classes will reflect that risk first. For those focused on the short end of the yield curve or managing spreads, it’s important to be responsive but not stagnant—keep an eye on inflation trends, watch for changes in central bank language, and be prepared to adjust positions, especially in USD-related trades. Create your live VT Markets account and start trading now.

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